If a recession hits Canada, The Canadian dollar and federal finances are in serious trouble – August 20, 2019,
While Stephen Harper as Prime Minister the Canadian dollar at one point reached parity with the U.S Dollar even surpassing it for a day. Unfortunately for Stephen Harper the Corporate Lobby in Canada demanded he brings the value of the Canadian dollar down, because the way the current Canadian economy is structured, things like Tariffs would lose a lot of money if the Loonie were ever able to appreciate to its current purchasing power in the modern economy.
A lot of economic barriers Canada has in place to prevent U.S companies from dominating Canadian society all revolve around Canada’s lower valued currency. The way how we pay pubic servants in many ways revolve around a lower-valued Canadian currency, current policies by the Bank of Canada revolve around a lower-valued Canadian loonie and this is ok unless Canada falls victim to the dreaded “R” word. How does a country in debt get out of recession without loosening government regulations? It’s very difficult.
In Greece as an example as broke as they are, their government is still not willing to get rid of minimum wages. Now, understand EU Liberal run countries like Sweden don’t have a minimum wage, why? Because minimum wages stagnate job growth. A minimum wage in case people don’t understand is a cherry on top if your economy is doing very well. However minimum wages are a detriment to your country if your country has problems paying its bills.
Rental controls, something a government can impose if times are good, but its a disaster if times are bad, why? Because Government artificially raises the cost of rental prices. Remember, the government can’t tell a building what to charge tenants, the government can only determine how much a more a landlord can charge after it gets the tenant. Now maintenance for a building can be pricey, but a landlord can’t adjust pricing to pay for improvements, thus because of this lack of flexibility, a landlord has to base his prices for the long term. This, of course, gives tenants price stability but also causes the government to have to get more involved in the real estate market.
Government intervention into the rental market housing market helped to fuel a concept that allowed CMHC to become an insurance company for mortgages. The CMHC is a Federal Crown Corporation, in Canada the Bank of Canada is also a Crown Corporation, working with each other these two State-Owned Enterprises have helped to create inflation in Canada. Unfortunately, this inflation is largely being financed by Consumer debt, this is a disater waiting to happen if Canada enters into a recession.
What’s a recession?
a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in Gross domestic product for two successive quarters.
Now, so my point is more clearly understood What is Gross Domestic Product(GDP)?
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period
Being that a lot of the prices Canadians are paying for almost everything are artificially inflated, during a recession, this could have a catastrophic effect on our economy. Let me be clear, there is Financial wizardry that could be imposed on Canada, however financial wizardry won’t create jobs and won’t change Canada’s culture of entitlement. In Greece, if the government dare touch minimum wages, the people might riot in the streets, if a government dare institute Austerity measures a Ppulust uprising might emerge and for the record, Populism occurs in many shapes and forms. Fascism was a form of Populism, Fascism or Nazism is nothing more than National Socialism and to this very day, National Socialism reasonates to lots of people in Latin America. Argentina refuses to shrink the size of its government and therefore constantly has a currency crisis.
Quebec has been a perpetual have not Province in Canada, yet the mere thought of cutting back public services is laughable to the average Quebec citizen, well suppose a recession in Canada stretches out for an extended period of time, how long is it before the Canadian dollar starts falling. remember part of what keeps the Canadian standard of living so high is our ability to pay our debts, well a recession is usually a sign that business activity is slow because CONSUMERS HAVE NO MONEY and can’t qualify to extend their credit lines!
Consumer debt in Canada is problematic if as an example homeowners can’t get more home equity, many won’t be able to pay their bills, and the higher the home equity, the more money people will demand to sell their homes and again this is problematic because fewer Canadians will qualify for debt. Regarding Federal debt. People forget there’s only so much an employer can afford to pay employees, private businesses have to turn a profit and if you work in the public sector if the private sector shrinks the government risks being the countries largest employer, which of course leads to an Argentina currency crisis problem. Greece actually has a currency problem, however, they’re saved by being a member of the EU.
A little info about Greece:
Over the past three years, government spending has amounted to 50.6 percent of the country’s output (GDP), and budget deficits have averaged 0.8 percent of GDP. Public debt is equivalent to 181.9 percent of GDP.
A growing public sector is often something that creeps up on you. It doesn’t happen instantly, you’ll hear the news that this and that company is closing one day, but you might hear positive job growth numbers the next day, average Canada might become desensitized assuming that all jobs are created equal, when in fact this simply isn’t true. Once a condo is built, THAT’s IT, that job is completed, sure those workers can find more jobs, but if the building isn’t commercial, there won’t be a lot of economic activity coming out of a Condo.
A commercial building will have lots of economic activity, but a Condo won’t and if let’s say condos are being bought up by foreigners who don’t live in Canada, rarely visit and don’t rent out these Condos, well that equates to even less economic activity in the surrounding areas of the local economy. This also leads to less maintenance and less revenue for the city. Adding to this disaster.
Canadians qualifying for debt is extremely important for economic growth and future investment and if Canada becomes a one-trick pony, meaning most of the investments into Canada revolve around real estate, well, you start to get a better picture of the economic disaster awaiting the Canadian economy. I get that it’s hard for a lot of Canadians to comprehend the disaster that’s potentially headed our way, but consider preparing. Because we might not be able to print our way out of any future recession.
If a recession hits, our federal finances are going to take a beating – nationalpost.com
Interesting times ahead.